For low risk, always go for a deposit account

What do you do if like a great many people you have sold your house and, as a consequence, are holding a large lump sum earmarked to be spent on another house in the next year or so? How do you (a) preserve its value in the face of fast-rising inflation and (b) find ways to do more than that without much risk?

The answers are categorically: (a) put it in a deposit account and (b) there aren't any. Investing money is, ultimately, about spending it. We invest money because at some point, someone (ourselves, our children, or other beneficiaries) will want to use it to buy something. The way we invest should therefore be dictated by when we want to spend money and how important the thing is that we want to spend it on. A long-term must have' or nice to have' life goal is ideally suited to equity investment you can afford to experience volatility. But a short-term must have' should be covered by nothing more complex than a cash deposit, simply because any volatility will jeopardise the achievement of the objective. Providing a family home falls cleanly into the short-term must have' category. Note too that most desirable properties are subject to sealed bids and you won't even be considered if you're not proceedable'. So you need to know you have immediate access to your money.

This means that even fixed interest-term deposits won't really do. You can get one-year fixed rate deposits of up to 6.45%, but if you take your money out early you will typically suffer 60 days' loss of interest. What we need here is a capital secure investment with constant liquidity and the truth is that, however much sell-to-renters may think they can make a quick return on their cash pile, the only thing that really fits the bill is a good instant access bank account.

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James Dickens is a Chartered Financial Planner at Grierson Dickens Limited (01252 718638).